Income Tax Appellate Tribunal dismisses Revenue's appeal, affirms genuine business dealings of Kalpataru Projects International Ltd. against allegations of non-genuine purchases.
In a significant ruling, the Income Tax Appellate Tribunal's Mumbai Bench "E" has quashed the Income Tax Department's ad hoc disallowance of business expenditures claimed by Kalpataru Projects International Ltd., amounting to INR 2.70 crore, under Section 37(1) of the Income Tax Act, 1961. The bench, comprising Shri Om Prakash Kant and Shri Sandeep Singh Karhail, directed the deletion of the entire disallowance, citing insufficient evidence to prove the non-genuineness of transactions.
The Tribunal's decision came in the wake of appeals filed by both Kalpataru Projects and the Revenue against an earlier order by the Commissioner of Income Tax (Appeals). The CIT(A) had partially upheld the disallowance by restricting it to 12.5% of the total purchases as a preventive measure against potential revenue leakage, which the Tribunal found lacked substantive basis.
The crux of the dispute lay in the Revenue's assertion that certain purchases by JMC Projects (India) Ltd., now merged with Kalpataru, were non-genuine. This claim stemmed from a search operation on the Kalpataru Group and subsequent statements from key employees unfamiliar with the vendors involved in the transactions. However, the Tribunal emphasized that unfamiliarity of employees with vendors, especially after a decade, does not conclusively establish the non-genuineness of purchases, particularly in the absence of incriminating evidence.
Kalpataru Projects, represented by advocates Shri Vijay Mehta and Shri Tarang Mehta, successfully argued that the transactions were conducted in the ordinary course of business and supported by adequate documentation. The Tribunal acknowledged this, noting that the assessee maintained consistent business relationships with the vendors over subsequent years, further supporting the legitimacy of the transactions.
The Tribunal's ruling underscored the importance of tangible evidence in supporting claims of non-genuine transactions, dismissing the reliance on assumptions and the absence of third-party verification. It also highlighted procedural lapses in the Revenue's approach, particularly the disregard for the assessee's documentation and the undue weight given to statements recorded long after the transactions occurred.
This judgment is seen as a reaffirmation of the principles governing business expenditures under the Income Tax Act, reinforcing the burden of proof on the Revenue to substantiate claims of non-genuineness with credible evidence.
Bottom Line:
Income Tax - Ad hoc disallowance made by Assessing Officer under section 37(1) of the Income Tax Act, 1961, cannot be sustained if the expenditure is proven to be wholly and exclusively for the purposes of business, and no incriminating material is on record to establish non-genuineness of transactions.
Statutory provision(s): Income Tax Act, 1961 Sections 37(1), 147, 148, 144, 132
